Government comparator meets aggregate opposition

Submissions to the Senate inquiry examining whether the general insurance industry needs a government-run home and motor comparison website are pretty clear.

While nobody denies consumers can have trouble pinning down the best policy for themselves, very few reckon such a website is the answer.

The inquiry was established after some hard-hitting, but ultimately misguided, News Corp coverage highlighting “skyrocketing premiums”.

No surprise, then, that News Corp journalist and petition organiser John Rolfe is one of the few voices backing the government-run comparison website plan. His employer is also a major backer of the One Big Switch campaign, for which it receives commissions.

Mr Rolfe says some insurance premiums have risen 154% over the past decade, that the dominance of Suncorp and IAG makes genuine competition hard to achieve, and that private sector comparators lack transparency.

The solution? For “a small sum” a public sector-run general insurance comparison service could be set up.

“If you are in any doubt about the need for change, try finding the best-value insurance for your own car,” he says. “It will sap you of the will to live. It shouldn’t be that way.”

Mr Rolfe finds an unlikely ally in Compare The Market, which argues for a government comparator despite the potential damage it could do to its own business.

But some will see its support for the initiative as a tactical move. Compare The Market is the dominant personal lines aggregator in the UK market, but has found the going in Australia far more difficult.

Major insurers have refused to allow it to access their policies and prices. If the government went ahead with the scheme, the issue of data access would presumably have to change.

“The process of obtaining even a single quote requires the consumer to spend a significant amount of time answering a number of personal and risk-based questions,” Compare The Market says.

“Repeating the process for numerous products or insurers is tedious.”

But support for the initiative ends there.

The insurance industry’s response is predictably hostile, and while consumer groups agree there is a problem, not even they see a government comparison site as the solution.

iSelect – a comparator, but one that stresses the importance of advice – says while forcing insurers to list products on comparator services “has some merit”, a government-run service would not provide value for money.

“There are many commercially operated comparison services in operation in Australia, including iSelect,” it says. “If the range of products offered on existing sites were comprehensive, this would provide transparency in the market.”

It says most customers want to talk to a qualified adviser, as well as compare prices on a website.

“There are many qualified insurance brokers and financial planners in Australia who are currently providing this essential service,” it says. “iSelect is proud to be a digitally enabled broker included in this group.”

The Insurance Council of Australia says there is no evidence comparison websites drive down premiums. However, there is “considerable research” that proves they encourage consumers to focus on price rather than coverage.

“There is also serious concern that price comparison websites lead to policy features being stripped out to enhance the policy’s price attractiveness,” it says.

“Such shortcomings result from the nature of general insurance when intermeshed with price comparison website methodology, and are not remedied by the establishment of an ‘independent’ comparison service.”

Examples of independent services such as Norway’s Finansportalen and the Australian Securities and Investments Commission website for home and contents insurance in north Queensland “have failed to spark consumer interest and use”.

The National Insurance Brokers Association is singing the same song. It says insurance comparison services “are invariably price comparison services”, while providing little or no support to consumers on the nature of risks or the terms of the policies.

“Where this occurs, the consumer is highly likely to misunderstand what it is they are paying for, and is likely to make a decision on an assumption that their risks will be insured when there is a real chance they may not be.”

Allianz says a government comparator would lead to “unsustainably low levels of profit” or losses for smaller insurers. Over time this would force some insurers to retreat from some types of cover, leading to a reduction in competition.

IAG says such a service would “misdirect focus and resources from the drivers of premiums and further emphasise price, working against the objectives of transparency and disclosure”.

Suncorp “does not believe a proposal to introduce an aggregator would have any positive impact on affordability over the long term”.

The consumer groups just don’t see a government-operated comparator solving the basic issues.

“A new independent comparator site would face significant limitations due to the complexity, variation and lack of transparency in general insurance policies,” the Consumer Action Law Centre says.

“The consumer harm we see in the general insurance industry would best be addressed by law reform to bring insurance contracts under the unfair contract terms regime, revive the standard cover regime so it better fulfils its original purpose, and place the onus on insurers to not sell unsuitable insurance.”

The Financial Rights Legal Centre does not support the creation of a government comparator either, saying comparison websites can “facilitate a race to the bottom on coverage as insurers with superior cover and claims-handling services are outcompeted by cheaper and inferior offerings”.

It’s unusual to see such agreement between the consumer groups and the insurance industry. Both see the disclosure regime as unfit for purpose and affordability being an issue in some areas.

It appears, then, that the senators are asking the wrong questions. But egged on by mainstream media like News Corp, how likely is it they will come up with the right answers?